2024 (8) TMI 343 - AT - Income Tax

Assessee wins partial relief on business expenditure deductions including proportionate salary and section 80C insurance premium claims

Ramanlal Jivrajbhai Patel Versus The ITO Ward-1, Himatnagar

ITAT Ahmedabad partially allowed the assessee's appeal regarding business expenditure deductions. The tribunal allowed proportionate salary deduction of ... Allowability of business expenditure - assessee has claimed deduction towards salary paid to his son only against taxable part of benefit, i.e. Remuneration from the firm - HELD THAT:- This expenditure will be reasonable if allowed proportionately. We, therefore, allow Salary to the extent of Rs. 5,39,520/- (i.e. 56.20% of Rs. 9,60,000/-). Thus, Ground No.1 of assessee’s appeal is partly allowed. Disallowance in respect of insurance premium of son of the assessee u/s 80C - Legitimate claim for deductions under the provisions of section 80C of the Act should not be disallowed without proper justification. Therefore, the ground of the assessee is allowed. Expenses of Salary, Car Expenses, Depreciation , Office and Other Expenses - HELD THAT:- While allowing such claim as business expenditure u/s. 37 of the Act, provisions of section 40A(3) of the Act should not be ignored. We have observed that entire amount of salary is paid in cash (Rs.16000/- per month). Also, Car expenses to the extent of Rs. 21,800/- (Rs. 10,500/- and Rs. 11,300/-) are incurred in cash. When the assessee is claiming any expenditure against the business income provisions related to such claim need to be adhered to. In light of the provision of section 40A(3) of the Act, we, therefore, upheld the addition and delete the remaining addition confirmed by the Ld. CIT(A). Ground of the assessee’s appeal is partly allowed. Issues:1. Allowability of salary paid to the assessee's son as a legitimate business expenditure.2. Disallowance of insurance premium deduction under Section 80C.3. Disallowance of certain business expenses under Section 37(1) of the Income Tax Act.Issue 1: Allowability of Salary to Son as Business Expenditure:The Appellate Tribunal considered the contention that the salary paid to the assessee's son, totaling Rs. 9,60,000, was a legitimate business expenditure incurred wholly and exclusively for business purposes. The Tribunal analyzed the provisions of Section 37 of the Income Tax Act, emphasizing the requirement that expenses claimed must be genuinely incurred for business purposes and reasonable in the context of business operations. The Tribunal noted that tax arbitrage should not be a reason to disallow expenditure if the transaction has commercial substance. After reviewing the benefits derived by the assessee from one of the firms, the Tribunal allowed a proportionate deduction of Rs. 5,39,520 for the salary paid to the son, partially allowing Ground No. 1 of the assessee's appeal.Issue 2: Disallowance of Insurance Premium Deduction:Regarding the disallowance of Rs. 2,70,507 made by the Assessing Officer in respect of the insurance premium deduction under Section 80C, the Tribunal observed that insurance premium paid in respect of a child is allowed as a deduction under the Act. The Tribunal highlighted that legitimate claims for deductions under Section 80C should not be disallowed without proper justification. Consequently, the Tribunal allowed the ground raised by the assessee concerning the insurance premium deduction.Issue 3: Disallowance of Business Expenses:The Tribunal examined the contention that business expenses amounting to Rs. 4,44,595 were incurred wholly and exclusively for business purposes and should be allowable under Section 37(1) of the Act. After reviewing the details and evidence submitted, the Tribunal emphasized that the reasonableness of business expenditure should be judged from the businessman's perspective. However, the Tribunal noted that provisions related to such claims need to be adhered to, citing Section 40A(3) of the Act. Consequently, the Tribunal upheld the addition of Rs. 2,13,800 and deleted the remaining addition confirmed by the Ld. CIT(A), partially allowing Ground No. 3 of the assessee's appeal.In conclusion, the Appellate Tribunal partially allowed the appeal filed by the Assessee, addressing the issues related to the legitimacy of business expenditures and deductions under the Income Tax Act. The judgment was pronounced in the Open Court on 11th June 2024 at Ahmedabad.